Wind funds should be diverted to gas storage

If the British economy wasn't already in tatters, the current cold snap could
have tipped it over the edge.

Because of the slowdown in industrial activity, factories and other businesses are using less energy. That's why Britain's current gas crisis isn't as acute as it could have been.

Despite the fact that industry is running at a subdued capacity, some businesses – with interruption clauses in their contracts – had to switch to other sources of energy as their taps were turned off.

Proponents of wind energy believe that wind turbines will be a global panacea to all our energy needs. However, there was a major problem last week when energy demand was at its peak – the wind was not blowing.

Cold weather is often accompanied by low pressure. This means a lack of wind just at the time when demand goes through the roof.

Just 0.2pc of a possible 5pc of the UK's energy was generated by wind turbines over the past few days, according to energy consultant Utilyx.

Last week National Grid was forced to put out two gas balancing alerts. A GBA is issued when gas demand threatens to outstrip supply. It is a warning to large users that they may have to cut consumption and companies on interruptible gas contracts may have their supply stopped.

Part of the reason for the first alert last Monday was because some Norwegian gas production units had been undergoing maintenance at the weekend. Supplies then picked up in the afternoon and the imbalance came to an end.

The second alert was issued on Thursday and the fact that there were two in one week is significant. The last time a GBA was issued was in 2006 after a fire at a gas storage site.

This should be taken as a warning. We must ensure that we have secure energy supplies in the future – and we need more gas storage to do this. Otherwise we could be hostage to large fluctuations in the gas price in the winter months and experience a real crisis when the wind does not blow.

To be clear, it is highly unlikely that we will run out of gas: we are not facing the prospects of old ladies freezing in their homes as large swathes of residential customers have their supplies cut off.

However, demand will continue to grow and declining production from the North Sea caused Britain to become a net importer of gas in 2004. It is expected that the UK will import 80pc of its gas by 2015.

Gas demand hit an all time high of 454 cubic metres on Thursday and, with the UK's population forecast to grow to 70m in the next two decades, any cold snaps in the future are likely to see new winter records hit on a regular basis.

The UK has enough storage capacity for 4pc of annual consumption compared with 19pc in Germany and more than 100pc in the US.

The problem with gas storage sites is that gas can only flow out at a certain rate. "The UK's main gas storage facility, Rough, can only physically deliver about 45m cubic metres a day, or a tenth of a cold weather demand day," according to Alex Froley, European power & gas editor at Platts.

"National Grid says Rough currently holds about 2,900m cubic metres, so it would take about 64 days to physically empty even if run non-stop from now on."

Richard Haddelsey, an energy analyst at McKinnon & Clarke, noted that gas storage projects do not get significant government backing – unlike the wind industry – but thinks these sites are just as vital to Britain's future energy needs.

He accepts that the energy market is liberalised but thinks it is a government's duty to ensure that a country has the infrastructure it needs.

Gas storage facilities are a good idea for two reasons. First, they act as a buffer should gas imports be affected by international disputes or pipeline problems and second, and more importantly for the consumer, they allow gas providers to manage variable demand.

This will reduce the need for imports when gas is at its most expensive in the peak winter months. Cheaper gas can be bought in the summer and then stored for use in the winter.

Last week, about 20pc of the UK's gas needs was supplied by liquefied natural gas (LNG). However, there is a supply risk here as well.

LNG cargoes can be shipped to the place where gas prices garner a premium. If gas prices in the US are higher than in the UK, who could blame a supplier for directing ships into this market instead of the UK?

The key to energy security in the future is having a diverse supply.

Currently, billions of pounds in subsidies is being blown into the wind industry through the Renewable Obligation Certificates. Perhaps the next government should consider diverting some of this cash so we can save more gas supplies for a future windless, icy day.